FTO FTO
Q4 2010 Earnings Call Transcript

Operator: Jeff Dietert, Simmons and Company

Jeffrey Dietert - Simmons: You mentioned in your opening remarks that West Texas sour was trading $5 to $7 below WTI. Could you talk about some of the major drivers there and the production that's coming on in the Permian, in particular, but maybe some of the other regions, how much of that is sour versus sweet?

Michael C. Jennings - Chairman, President and CEO: Let me ask you Joey Purdy, who is in-charge of our Commercial Operations to talk about that dynamic. It's really interesting the way it has moved in the last few months.

Joel Purdy - VP, Commercial Operations, Frontier Refining & Marketing, Inc.: I think I'll have a number for you as far as percentage of sweet versus sour other than shale plays, but I do believe it's predominantly the lighter sweet crudes and I think the same thing is going on in the Permian. The other thing that's going on, on sour crude, at least West Texas sour, we believe this has been a little bit under the radar screen that we certainly saw – there has been some weather-related downtime in West Texas, right and that's probably in the numbers as well. The $5 number, we haven't hit that since December '08. What happened in the past when we got heavily contango on the Merck contract, right, is you'd see TS pull in against WTI and actually get tight as well and we saw that both in Q1 of '09 and Q2 of '10, and this time it was different. I think it's a little bit early to say for sure what's happened in back. The outer months are trading as weak as the (prior) months certainly, but we think this is a phenomenon where the West Texas sour crudes are going to have to increasingly compete against Canadian heavy crudes that are getting ready to come in the cushion via Keystone. That's a fundamental shift instead of trading off of a TI minus the discount, they're going to trade more at Canadian heavy plus a premium, right. El Dorado's bread and butter for years and years was WTS and we have a lot of leverage or potential leverage to that barrels, the market pays us to run it. So, that's something we are going to be watching closely.

Jeffrey Dietert - Simmons: Could you make some remarks as to what you're seeing with the use of rail, truck and barge equipment? Are those types of transportation methods capacity constrained? How are you seeing them being utilized to try to take advantage of the arbitrage between WTI and LLS?

Michael C. Jennings - Chairman, President and CEO: Joey, can you speak to that, please?

Joel Purdy - VP, Commercial Operations, Frontier Refining & Marketing, Inc.: Sure. I mean that is certainly going on – I mean, when you get a $20 whatever you want to call it arbitrage to move a crude from one region to another one, you mobilize a whole fleet of entrepreneurs out there right to take advantage of it. The problem you have is that's very fragmented, right. You can't see it, right. You hear a lot of anecdotal stories about barges moving out of Wood River, down the river, which I expect to have, and they're certain or his happening. Certainly there are unit train operations in the Bakken that I expect are moving flat out, but at the end of the day it takes a while to gear up those resources, and if you don't have the rail facilities and what not to do that right, there is only a limited volume that you can move in the short-term, right. So, that is certainly going on, but I'm not sure it's enough to kind of clear the market. I mean, I think one of the things, a lot of this is about increased domestic production, but one of the things I think has been missed a little bit is pipeline capacity into the Chicago market and eastern PADD 2 market is still limited. There are clearly a lot of barrels coming into Cushing or getting ready to come into Cushing via Keystone that would prefer to go into Chicago or eastern PADD 2 market and it can't get there because of limits on (Enbridge's) system and I believe some logistic limits on Keystone's deliveries in to Patoka as well and I don't believe enough barges and trucks and railcars can move to clean that volume up in the short-term. So, a lot of moving parts, but it feels like this is somewhat sustainable.